Black Friday: Ready, set, charge!

Wherever they shop, Americans go with ready credit. Will they stick to their budgets or fall into spending traps?

Whether over the coming weeks you venture into the malls, small businesses, or cyberspace with your plastic or a mobile-pay option, you’ll have more company than ever as Trans Union reports that 195.9 million U.S. consumers have access to revolving credit, including bank-issued and private label credit cards.

And that may grow even further before the season ends. TransUnion notes that in November and December of last year average originations for private label credit cards doubled for online retailers and nearly doubled for discount store retailers. This time of year retailers and their lender partners tend to offer up new accounts.

TransUnion predicts a robust shopping season.

“Consumer confidence is quite high relative to where it was historically,” says Ezra Becker, senior vice-president and head of research and consulting. This indicates that they’ll be willing to spend, on credit, in this holiday season.

“The third quarter of 2017 exhibited a lending market that continued to operate in a stable manner, with consumers continuing to gain access to credit and take advantage of that access,” says Becker. “However, we are beginning to see a slowdown in originations, which may be a signal of saturation in the lower-risk credit tiers and some pullback in lender risk appetite in the higher risk tiers. Despite the slowdown, we anticipate a robust holiday shopping season.”

Consumer confidence factor

Becker pointed to the University of Michigan Index of Consumer Sentiment, which hit 98.5 in November, up 5% from November 2016. University economists recently reported that sentiment levels this year have been at the highest levels since 2004.

“In contrast to the media buzz about approaching cyclical peaks and an aging expansion, with the implication of greater uncertainty about future economic trends, consumers have voiced greater certainty about their expectations for income, employment, and inflation,” according to Richard Curtin, chief economist of the Surveys of Consumers at the university. “Inflation expectations have shown the smallest dispersion on record, and increased certainty about future income and job prospects has become a key factor that has supported discretionary purchases.”

“What makes the credit economy work well is ability and predictability,” Becker continues. Consumers don’t like uncertainty and right now they have credit and high employment means they can pay off what they spend.

What about millennials? “There is the idea in the marketplace that millennials don’t like credit cards,” says Becker. There is some truth to their preference for debit cards, he says, but some of that is because such options are more widely available to them than for earlier generations at the same age.

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On the other hand, says Becker, millennials’ earnings are somewhat lower than Gen Xers’ were at the same ages. Millennials have the same amount of friends and family members expecting holiday gifts, he says, so, while many prefer personal loans, it doesn’t mean they won’t be charging purchases this season.

Becker notes that serious delinquencies on cards rose to 1.68% in the third quarter, versus 1.53% for third-quarter 2016. However, he said this is still low in historical terms.

Survey describes holiday spending traps

The other side of the nation’s annual spending season is the post-season, when people get the bills.

A recent report from the Center for the New Middle Class looked at causes of holiday overspending. The center is sponsored by Elevate, a fintech credit company. The report was based on a survey of over 1,000 consumers, about half of which were non-prime and half prime, by credit score. It was based on 2016 holiday shopping experience.

The report states that most Americans spend about 15% more during the holidays than they plan to. Often, the perception of saving drives the overspending.

Causes of overspending include:

• Chasing sales. Those who do so are 45% more likely to overspend than those who plan ahead for shopping.

• Clipping coupons. Those who do so are 22% more likely to overspend.

• Using credit cards. Nonprime credit card users are 89% more likely to over-spend compared to people who use cash.

Interestingly, it’s not just gifts that build holiday debt. The report found that 42% of holiday spending is not on presents. This includes travel, meals, charity, parties, and decorations.

Steve Cocheo’s 39+ years in financial journalism have taken him to all 50 states and nearly every corner of financial services in companies from fintech startups to community banks to regional and national giants. He is executive editor ofBanking Exchangeand digital content manager of www.bankingexchange.com. Previously he spent 36 years on the staff ofABA Banking Journaland 22 years concurrently as editor ofABA Bank Directors Briefing. He is the only journalist to have sat in on three federal banking exams, was a finalist for the Jesse H. Neal national business journalism awards, and a winner of multiple awards from the American Society of Business Publication Editors. In 2017 he received three awards from ASBPE: National Gold, National Bronze, and Regional Silver. Connect withSteve Cocheo and Banking Exchange on LinkedIn. FollowBanking Exchange on Twitter